In re Tayfur
| Decision Date | 18 March 2015 |
| Docket Number | No. 14-3478,14-3478 |
| Parties | IN RE: MUSTAFA TAYFUR, Appellant |
| Court | U.S. Court of Appeals — Third Circuit |
NOT PRECEDENTIAL
On Appeal from the United States District Court for the Western District of Pennsylvania
Submitted Pursuant to Third Circuit LAR 34.1(a)
March 17, 2015
Before: SMITH, JORDAN and VAN ANTWERPEN, Circuit Judges.
Appellant Mustafa Tayfur brings this action to challenge the final decision of the District Court for the Western District of Pennsylvania, dated July 7, 2014, affirming the denial of his motion to reject an unexpired lease pursuant to 11 U.S.C. § 365. In re Mustafa Tayfur, 513 B.R. 282, 292 (W.D. Pa. 2014). For the reasons that follow, we will affirm the decision of the District Court.
Because we write only for the parties, we will only set forth the facts necessary to inform our analysis. Mustafa Tayfur ("Tayfur") owns approximately 107 acres of land in Butler County, Pennsylvania. On December 28, 2005, Tayfur executed a lease agreement granting Central Appalachian Petroleum ("CAP") oil and gas extraction rights. The agreement was signed by Tayfur, but it was never signed by a CAP representative. The lease had a primary term of ten years. Under the lease, CAP was obligated to pay Tayfur an annual payment of $3.00 per acre, or $321.00 per year. If oil or gas extraction commenced, CAP was obligated to pay Tayfur royalties amounting to one-eighth of the revenues realized from that extraction.
After the expiration of the lease's primary term, the lease could be extended if CAP either (1) continued to pay Tayfur the annual payments under the lease, or (2) commenced extraction procedures. CAP timely made payments under the lease until it assigned the lease to East Resources, Inc. ("East") on July 14, 2006. SWEPI L.P. ("SWEPI") is East's successor-by-merger. After SWEPI took over the lease, it too madetimely payments to Tayfur. Tayfur cashed all checks he received pursuant to the lease agreement.
On November 14, 2011, Tayfur voluntarily filed a petition for bankruptcy under Chapter 13 of the United States Bankruptcy Code. The interim plans Tayfur filed with the Bankruptcy Court for the Western District of Pennsylvania ("Bankruptcy Court") communicated his intention to fund his bankruptcy through payments received under his oil and gas lease. However, after SWEPI had still not begun extraction in early 2013, Tayfur began discussing the sale of his oil and gas rights to other parties. On February 17, 2013, Tayfur received a letter discussing a proposed offer to buy his mineral rights from Thomas E. McMaster, an agent for Bounty Minerals. Shortly thereafter, on February 20, 2013, Tayfur filed a motion to reject his lease with SWEPI pursuant to 11 U.S.C. §§ 365(a) and (d)(2), which permit a trustee to reject unexpired leases of the debtor where doing so would benefit the bankruptcy estate. SWEPI opposed the motion.
At an evidentiary hearing held by the Bankruptcy Court on October 22, 2013, Lester Hebert testified on behalf of SWEPI. Hebert, a SWEPI land representative, testified that rejecting the lease with SWEPI would not benefit Tayfur's estate. Hebert explained that drilling companies preferred to drill lateral, rather than vertical, wells. He also testified that, because Tayfur's parcel of land was not large enough to accommodate a lateral well, it had limited value for a drilling company that did not own the adjoining land parcels.1
Pennsylvania attorney Harry Klodowski testified at the hearing on behalf of Tayfur. Klodowski's testimony conflicted with Hebert's, as Klodowski stated that forfeiting the lease with SWEPI would benefit Tayfur's bankruptcy estate because leases were "like playing cards" that were "routinely traded between companies." . Tayfur also submitted an affidavit from Klodowksi stating that Tayfur's lease with SWEPI contained a price term significantly below market value.
On February 26, 2014, the Bankruptcy Court denied Tayfur's motion to reject his lease with SWEPI. In re Tayfur, 505 B.R. 673, 684 (Bankr. W.D. Pa. 2014). The Bankruptcy Court found that the Pennsylvania Landlord and Tenant Act of 1951 did not govern the oil and gas lease between the parties. Id. at 677. It accordingly rejected Tayfur's argument that the lease was an "at will" lease under Pennsylvania law and could therefore be cancelled by him at any time, regardless of whether the requirements of 11 U.S.C. § 365 were satisfied. Id. The Bankruptcy Court also rejected Tayfur's arguments that the original lease itself and the assignment of the lease were both cancellable at will because they violated Pennsylvania's statute of frauds. Id. at 679-81. After disposing of those preliminary arguments raised by Tayfur, the Bankruptcy Court addressed the merits of Tayfur's motion to reject the lease pursuant to § 365 and found that rejection would not benefit his estate. Id. at 682-84. It therefore denied his motion to reject the lease. Id. at 684.
Tayfur appealed that decision to the District Court for the Western District of Pennsylvania ("District Court"). The District Court affirmed the decision of the Bankruptcy Court. In re Mustafa Tayfur, 513 B.R. 282, 292 (W.D. Pa. 2014). Tayfur timely filed this appeal on July 31, 2014.
This Court "exercise[s] plenary review of an order issued by a district court sitting as an appellate court in review of the bankruptcy court." In re CellNet Data Sys., Inc., 327 F.3d 242, 244 (3d Cir. 2003) (citing In re Top Grade Sausage, Inc., 227 F.3d 123, 125 (3d Cir. 2000)). We review legal conclusions de novo. Id. We review factual findings under a "clearly erroneous standard." See Fed. R. Bankr. P. 8013 advisory committee's note ("This rule accords to the findings of a bankruptcy judge the same weight given the findings of a district judge under [Federal Rule of Civil Procedure 52]."); Fed. R. Civ. P. 52(a)(6) (). We review mixed questions of law and fact under a mixed standard—reviewing key facts under the clearly erroneous standard and reviewingthe bankruptcy court's application of the law to those facts de novo. In re CellNet, 327 F.3d at 244.
On appeal, Tayfur generally challenges the denial of his motion to reject his unexpired lease with SWEPI pursuant to 11 U.S.C. § 365. Before we reach that argument, we first analyze certain arguments raised by Tayfur under Pennsylvania state law. Tayfur argues on appeal that this Court need not determine whether rejection of the lease is appropriate under § 365 because the lease can be terminated by Tayfur at any time. (Appellant Br. at 14-24). Specifically, Tayfur argues that the lease is terminable at his will because (1) the lease is an "at-will" lease under Pennsylvania's Landlord and Tenant Act of 1951, (2) the lease itself violates Pennsylvania's statute of frauds, and (3) CAP's assignment of the lease to East violates Pennsylvania's statute of frauds. We examine each argument in turn.
Tayfur first argues that he can terminate the lease at any time because the lease is an "at will" lease under Pennsylvania state law. To support this argument, Tayfur relies on section 250.202 of Pennsylvania's Landlord and Tenant Act of 1951. 68 Pa. Stat. § 250.202 (West 2014). This section provides that leases of real property (including personal property) that have a duration longer than three years must be "in writing and signed by the parties." Id. If such a lease is not signed and in writing, then "it shall have the force and effect of a lease at will only and shall not be given any greater force or effect either in law or equity." Id. This provision initially appears to apply to the lease atissue. First, the duration of the lease at issue did exceed three years: it had a primary term of ten years. (Appx. at 112). Further, it is undisputed that CAP—an original party to the lease—did not sign the lease. (Id. at 113).
However, as noted by both the Bankruptcy and District Courts, Tayfur's argument cannot withstand further scrutiny of the type of lease at issue in this case. Section 250.202 is part of Pennsylvania's Landlord and Tenant Act of 1951. The lease between the parties is not a landlord-tenant agreement; rather, it is an oil and gas lease. As explained by the Bankruptcy and District Courts, oil and gas leases are "far from the simplest of property concepts." In re Tayfur, 513 B.R. at 287 (quoting Brown v. Haight, 255 A.2d 508, 510 (Pa. 1969)); In re Tayfur, 505 B.R. at 681 (same). "A mineral lessee is unquestionably more in the position of a purchaser than in that of a mere occupant of the land." Kepple v. Fairman Drilling Co., 551 A.2d 226, 230 (Pa. Super. Ct. 1988) (quoting Arkansas Louisiana Gas Co. v. Evans, 338 S.W.3d 666, 669 (Ark. 1960)).
For these reasons, Pennsylvania courts have held that oil and gas leases in Pennsylvania are not governed by Pennsylvania's Landlord and Tenant Act of 1951. E.g., Derrickheim Co. v. Brown, 451 A.2d 477, 479 (Pa. Super. Ct. 1982) . Pennsylvania law therefore dictates that the lease at issue is not governed by Pennsylvania's Landlord and Tenant Act of 1951. Tayfur's arguments that the lease is terminable at will based on his interpretation of that statute are accordingly without merit.
Tayfur's next argument on appeal is that CAP's failure to sign the lease at issue caused the lease to expire on December 28, 20083 and become an "at will" lease for each year thereafter. (Appellant Br. at 16). We disagree. At the...
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